Global Trade and Financial Institutions

Defining the issue In 1999, something peculiar happened in Europe under the auspices of European Union. Some countries in Europe came together to set up new economic policy arrangements that will govern them economically.Advertising We will write a custom case study sample on Global Trade and Financial Institutions specifically for you for only $16.05 $11/page Learn More This was one of the most momentous occasions happening in Europe since the adoption of the common market protocol way back in 1957. Chief among the economic policy arrangements was the adoption of a single currency – the euro. Most European countries believed that by adopting this single currency, there would be a positive impact to not only the operations of European banks, but also currency traders (money exchange bureaus). Additionally, the adoption of the euro as a single currency meant to ease trade between countries in the region. The biggest question however is how the euro will manage to break into currency hegemony. There is no doubt that for over five decades now, the dollar has been the most dominant currency in global trade and financial institutions. In fact, its performance in international markets has always influenced the prices of commodities such as oil. This scenario has attracted a series of criticism from financial institutions and international traders. On international trade platforms, the criticisms of the dollar hegemony are getting louder and louder by the day. China has indeed led other countries opposed to the dollar hegemony by practicing quantitative easing, which in turn keeps eroding the legitimacy of the dollar as number-one global reserve currency. T he euro, most probably the second global reserve currency, has tried to break the U.S. dollar hegemony, but with little success.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Thi s paper is a case study on whether the euro has succeeded in breaking the dominance of the dollar in global trade and financial institutions. The case study will discuss the impact of the euro as a single currency in Europe, and assess its influence in International Monetary System. The case study will also examine factors that led to the international acceptance of currency, vis-à  -vis the Euro (Chinn Jeffrey, 2005). Case study Before the introduction of the euro, the dollar accounted for 83% of world transactions. Following it closely was the Japanese Yen. Notably, this occurred even when statistics indicate that Europe control world trade at 17% compared to United States at 12%. Nonetheless, the fact that many European countries accepted the euro and opted to use it in trade is a boost of the euro. European countries also prefer to use the euro to trade because of the low transaction costs. (Chinn Jeffrey, 2005) The exchange rate market has been a speculative and free-floati ng nature one. From the graph above, we can see the variations of the dollar vs. euro exchange data.Advertising We will write a custom case study sample on Global Trade and Financial Institutions specifically for you for only $16.05 $11/page Learn More At the dawn of the 20th century, statistics from banks indicated that the dollar was the major reserve currency. In 2007, its share in exchange market was 65.7%, while that of the euro was 25.2%. However, since then the share of the dollar has been on decline with that of euro rising. Analyzing the case data (Chinn Jeffrey, 2005) Both the dollar and the euro enjoy monopoly in the exchange market. By the end of 2012, the dollar reserve share stood at 61.8%, while that of the euro stood at 24.1%. This means that the share of the dollar has decreased significantly. The exchange rate of the dollar to that of the euro at its introduction was 1.1795. It weakened further in the next two years to 0.895. However , as the world became acquainted with it, it rose gradually to 1.000 in 2002 and 1.637 in 2008. Today, a single dollar trades for 1.28 euro. Generating alternatives Marketing The call for the new reserve currency, as an alternative to the dollar is was good news. To realize this, the European Central Bank assumed the role of marketing the euro to all European countries and even outside the region. It also took over the responsibility of creating neutral monetary policies that will favor its exchange rates in the financial market on behalf of member countries. By enacting new policies, the banks expected international spillovers and colossal euro demand in international financial and exchange markets.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More This is simply because the spillovers will definitely have an impact on exchange rates in addition to enhancing international policy coordination. We have seen international institutions such as the International Monetary Fund, the World Bank, G7, and OECD adopt the euro as one of the global currencies. However, although the euro is a global currency, it has not broken the dollar hegemony completely. This is simply because in the oil market, traders prefer to use a dollar rather than the euro. Nonetheless, the euro is common especially in the purchase of other goods not only in the European Union, but in the rest of the world as well. Internalization of the euro In considering which of the two exhibits more influence, we assess the internalization of both the dollar and euro in global foreign exchange markets and various international securities markets. For example, the dominance of the euro in European markets has managed to reduce the dominance of the dollar. In other words, the economic size of the region, the continued liberalization and amalgamation of financial markets are some of the reasons that make the euro perfume better than the dollar in European financial and exchange markets. International creditors also have confidence on euro monetary policies. However, United States does not believe that this is matter of great concern, as it believes it will take a long period for a new currency or any otherworld currency to supplant the dollar. Although the dollar is still the primary reserve currency, there is likelihood that the euro can emerge stronger and take the number-one position. Monetary unification in Europe, United States inflation, and the collapse of the Bretton Woods exchange rate regime, undoubtedly, are some of the opportunities that can strengthen the euro to dominate in world markets. Establishment of euro reserve account Many analysts point out that currency hegemony is a political war that has massive economic benefits. This is the rea son why European countries came together and adopted the euro as a single currency. The amalgamation of European countries to create a geopolitical and financial power base has also pushed international currency system (Kenen, 1995). Selecting decision criteria Here, we analyze the best criteria that will establish the dollar hegemony. Euro as a single agency Usually, in international economy, there are a myriad of factors that significant role in establishing currency hegemony. First, the adoption of the euro as a single currency by many European countries led to its internalization, and this made it strong. Secondly, the players should market the currency internationally in order to make it dominant. Currency wars do not have supranational authority such that traders and financial institutions have no option other than to use the currency. It all depends on the market dominance, economies of scale, and other factors, for example, externalities, ambiguities and asymmetries in the u se of currencies. Analyzing and evaluating alternatives In order to break the dollar hegemony in global trade, the European Monetary Union must consider some alternatives. Use of the euro in oil trade In 2002, something peculiar happened, perhaps boosting the euro to become an important player in foreign exchange markets and international financial institutions. Countries such as China, Russia, and Canada opted for the euro instead of dollars in their reserve banks. Additionally, many countries have also joined the union raising oil purchase from OPEC countries to over 50 percent. Currently, many European countries prefer to use the euro in foreign exchange markets rather than the dollar. However, the euro has not managed to rival the dollar in the oil market segment, as many traders prefer dollars. The reason is that most of the OPEC oil reserves are in dollars and it has not been easy to replace them with the euro. Additionally, if other oil importing countries also opt for the eu ro instead of the dollar, then the euro will advance towards hegemony. Irrefutably, the oil market determines the global dominant currency. Therefore, for the euro to be a competitor to the dollar, and perhaps outdo it, global traders and financial institutions must replace the dollar reserves with euro reserves. By doing so, the dollar will plummet, and a myriad of asset markets will offload excess dollars. On the other hand, this will help millions of poor Americans purchase homes due to the deflation of the property market. Furthermore, this will streamline the United States stock markets and make them more profitable. In other words, the devaluation of the dollar will on the other hand lead to the appreciation of the euro. This is the only way that the euro will dominate global trade. However, as it stands now, the dollar is the most dominant world currency (Kenen, 2002). Empowering the European Monetary Union (EMU) Exclusive invoicing of the euro will strengthen the euro in fin ancial and exchange markets. This means that countries trading with European countries will suffer reduced economies of scale if they do not use the euro. In some instances, one-off arithmetic impact will increase the value of dollar depended trade, and many traders would switch to the euro. Additionally, given the turbulent foreign exchange markets, where the dollar exhibits high volatility against other currencies, many traders have resorted to the euro for bilateral trade. Consequently, this has enhanced chances of the euro outdoing the dollar as an international unit of account (Reinhart Rogoff, 2002). Selecting the preferred alternative Increasing euro reserve share The best alternative of making the euro strong is by increasing the reserve share for oil trade. Many analysts agree that the adoption of a single currency can be a cutting-edge to investment, especially in the oil market. That is why the pricing of oil in dollars established the dollar hegemony, which has stood fo r over five decades now. However, allowing a second currency into the oil market will not only increase the reserve currency, but also avoid the monopoly experienced in the market currently. Statistics indicate that Euro Zone commands a bigger junk of world trade in comparison to United States. In reality, these statistics show that European countries import more oil compared to that imported by United States. Unlike United States, which has vast foreign debt in addition to its trade deficit, Euro Zone offers interests to its oil trading partners in Middle East. Virtually, the European Central Bank has done much to tighten and seal budget deficits in order to boost the purchasing power of the euro. Action/ implementation plan Phrase oil currency plan There is no doubt that the oil market is the one separating the dominance of the dollar in global trade from that of the euro. Therefore, in order to rival this dominance, the Economic Monetary Union should create a plan—the phra se oil currency plan. This plan proposes increase of euro reserve in the oil market. Since its introduction, the euro has had an influence especially in the Euro Zone, and it stands the biggest rival of the dollar. The euro has done well in exchange markets so far. This plan proposes to increase euro reserve to over 50% so that it can equal that of the dollar. By doing so, traders will find it necessary to use the euro for oil trade. In the political arena, the rivalry between United States and countries from the Middle East has had a negative impact on the dollar. This is good news to the euro and for the plan. For instance, OPEC countries such as Iran have openly defied the dollar and instead opted for the euro. In fact, in 2002, out of anger, the Iran government changed it currency reserves into euros, thus, favoring the euro. This has indeed boosted the chances of the euro becoming number-one global currency. Venezuela is also another OPEC that rejects the use of dollars in the oil trade. In fact, in 2000, in a summit of OPEC member states, Venezuela proposed a computerized trade system that will allow countries to trade their commodities without using any currency. Iraq also followed suit by writing to the United Nations to allow it trade it oil products in euros. It also managed to change its currency reserves into euros. Syria has also been exchanging its oil commodities and other products for euro. In other words, by converting dollar reserves into the euro, the euro will become stronger (Mundell, 1998). Conclusion Although the euro has not fully become the number-one global currency, it has managed to rival the dollar in foreign exchange markets and international financial institutions. Within the Euro Zone, the euro is the common currency for exchange. However, the recent Euro Zone crisis posed yet another challenge of making the euro stronger in exchange markets than the dollar. Nevertheless, as time goes by, and many countries change their dollar r eserves into euro, perhaps the euro will become the number-one position global currency by 2020. Reference List Chinn, M. Jeffrey, F. (2005). Will the Euro Eventually Surpass the Dollar? Paper presented at the NBER Conference, G7 Current Account Imbalances: Sustainability and Adjustment. Cambridge, Massachusetts. Cohen, B. J. (1997). The political economy of currency regions.  New York: Columbia University Press. Kenen, P. (1995). Economic and Monetary Union in Europe: Moving Beyond Maastricht. Cambridge: Cambridge University Press. Kenen, P. (2002). The Euro versus the Dollar: Will There Be a Struggle for Dominance.  Journal of Policy Modeling, 24, 347–354. Mundell, R. A. (1998). What the Euro Means for the Dollar and the International Monetary System. Atlantic Economic Journal, 26(3), 227–237. Reinhart, C. M. Rogoff K. (2002). The Modern History of Exchange Rate  Arrangements: A Reinterpretation. Cambridge, Massachusetts: National Bureau of Economic Research. This case study on Global Trade and Financial Institutions was written and submitted by user Fernanda R. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

Sample Definition Essay - Common Mistakes to Avoid

Sample Definition Essay - Common Mistakes to AvoidAs an English major I have read a lot of sample definition essays, which appeared on papers, testing and entrance exams. A lot of these samples contain the common mistake that I have noticed in a lot of sample essays. These common mistakes are attributed to English majors, who do not realize the importance of grammar, punctuation and syntax when writing an essay.I am going to discuss a few of the most common mistakes in sample definitions that I have seen. I have seen a lot of errors in the last year. The things that are common in these samples are spelling, incorrect punctuation, wrong punctuation and grammar. These mistakes will certainly ruin your opportunity to apply for an English degree, but what can you do about it?Most of the time, we do not realize the importance of grammar in a research paper, so this is a common mistake made by a lot of English majors. Grammar rules a research paper, the points in a thesis or dissertation, and even essays.Writing an essay, which includes any forms of argument will include most of the common mistakes made by students. When you do not get all the points across correctly, you will not be able to understand the ideas of other students, and this may cause you to lose points to other students.All essays will include spelling, proper grammar and correct punctuation. Even if you use an English spelling program, you still have to look for all these words while writing an essay.If you want to impress your classmates, you have to understand the concepts of terminology, hyphenation, subclause, sentences, points, clause, sentence construction, adjectives, adverbs, etc. Reading and writing an essay is quite similar to reading and writing vocabulary.Writing an essay is a very difficult task. Make sure that you start with a great beginning, so that you can learn all the mistakes in the process.